V. COSTS AND LEAD TIMES


    Tire Costs

    The proposed tests will result in tires being designed that are less susceptible to heat build-up. The agency believes that many, if not all, of the P-metric tires rated C for temperature resistance, some P-metric tires rated B for temperature resistance and some LT tires will not be able to pass the proposed new tests (Alternative 2). The agency has attempted to determine the difference in prices between two tires that appear to be essentially the same in all characteristics, except one is a B-rated tire and the other is a C-rated tire for temperature resistance. However, it appears that there are very few cases where every notable attribute (comparing tire size, warranty provided, treadwear, and traction) of two different tires are the same except for the temperature resistance rating.

    The manufacturers have different options for improving the heat resistance of tires, many of these options would include a combination of trade-offs in traction, treadwear and rolling resistance. One method would be to change the design of the core of the tire. A second method would be to reduce the amount of tread on the tire. In general, the smaller the amount of tread, the lower the heat build-up. This strategy has obvious implications on treadwear and it could also reduce the wet traction characteristics of the tire. However, the agency does not know the relationship between the amount of tread on the tire and heat build-up. Comments are requested on how much decrease in treadwear would be required to make a tire that would otherwise fail the proposed tests be capable of passing the proposed tests.

    The consumer cannot detect the difference in tire design. However, the consumer will notice that there is a difference in pricing and marketing between the A, B and a C-rated tires for temperature resistance. The agency estimates that the difference in price between a B or C-rated tire that may fail the proposed standard and a B-rated tire that would pass the proposed standard is $3 per tire (in 2001 dollars). This estimate is based on two considerations. First, the amount by which these tires are failing the tests are not large and the agency assumes that the changes to the tire to make them pass the tests would also not be large. Second, the agency attempted to get a feel for the tire market and what it means to pricing to be a C-rated versus B-rated tire. This difference in price did not appear to be large. Comments are requested on this estimate. Thus, for a new vehicle that was equipped with C-rated tires, the difference would be $12 to $15 per vehicle depending upon whether it has a full-size spare tire or not (1). The agency does not know how consumers would value a loss of treadwear or traction, compared to the reduction in the price of the tire, if the method of decreasing the amount of tread on the tire were used to make a tire meet the proposed requirements.

    The $3 per tire estimate is for the combination of high-speed and endurance tests. As discussed in the benefits section, it appears that most or all of the current tires would meet the upgraded road hazard impact test and de-beading test. Thus, we don't anticipate an increase in costs for those tests. The agency has not done enough testing for the aging test to form an opinion of its potential costs. However, many tire manufacturers already perform an aging test. The agency is considering an aging test run by Michelin. If most manufacturers already perform an aging test, and if the agency selects a test that is about the same stringency as the manufacturer's aging tests, then the price of this test is already in the price of the tires. Since the price of Michelin tires does not appear to be out of line with other manufacturers, it is likely that the incremental cost of adding an aging test will be minimal. The low pressure - endurance test would have no cost, since all of the tires tested passed.

    The failure margin for the low pressure - high-speed test appears to be very high. Costs for this test cannot be easily characterized. There is some overlap of the costs for this test with the costs of the high-speed and endurance test. The agency requests comments on the incremental cost of meeting this test over and above the high-speed and endurance tests. One of the possible high-cost countermeasures for meeting this test would be to increase the tire size used on the vehicle to get more tire reserve load. The incremental cost of increasing a tire size depends upon the initial size and price of the tire. For the smallest/cheapest P-metric tires, increasing a tire size increases price by about $1 per tire. For the larger P-metric tires, increasing a tire size increases price by $3 to $5 per tire and for an LT tire, the price increase would be $5 to $10 per tire. Comments are requested upon what countermeasures would be needed to pass this test and their costs.

    C-rated tires will often be marketed as the least expensive tires available. Since only a portion of new vehicles are equipped with tires that would not meet the proposed standard, we can estimate the average price increase for new vehicles by comparing those vehicles that would get improvements at $3 per tire with those vehicles whose tires and prices wouldn't change. In Chapter IV, we estimated that 33 percent of P-metric tires and 29 percent of LT tires might not pass the proposed standard. Based on the data presented in Table III-3 for all crashes by light truck type, we estimate that 10 percent of light trucks have LT tires. Since future sales are estimated to be split evenly between passenger cars and light trucks, 5 percent of all light vehicles (10% * 0.5) would be equipped with LT tires. Thus, it is assumed that 32.8 percent of all light vehicle tires would not meet the proposed standard (0.33 * 95% of sales + 0.29 * 5% of sales). Thus, the cost of this proposed standard per average new vehicle would be $3.94 to $4.92 per vehicle ($12 * 0.328 to $15 * 0.328). The range reflects whether the vehicle comes equipped with a temporary spare or full-sized spare tire. The agency estimates that about 85 percent of the light vehicle fleet (passenger cars, pickups, SUVs and vans) comes equipped with a temporary spare tire. Thus, the average cost for the new vehicle fleet would be $4.09 ($3.94 * 0.85 + $4.92 * .15).

    The tires rated C for temperature resistance appear to be among the lowest priced tires on the market. Thus, if this proposal resulted in the lowest priced new tires being taken off the market, it could have marketing effects on the new vehicle and aftermarket tire sales. This is because there are alternatives to buying new tires. These alternatives include temporary spare tires for new vehicles and re-treaded tires and used tires in the aftermarket. For new vehicles, it is possible, but unlikely, that the increase in price for a full-size tire could persuade some companies to provide a temporary spare tire rather than a full-size spare tire. Currently, most new vehicles are equipped with a temporary spare tire. The main exception is pickup trucks, most of which have a full-size spare, where we don't think manufacturers will change their policy toward temporary spares since consumers want a full-size spare to carry loads if need be. The other exception is in higher priced passenger cars, which typically use better tires that would already pass the proposed tests. Thus, the price of the tires they use would not be affected by this proposal.

    In the aftermarket, there are many reasons why people buy the least expensive tire that will fit their vehicle. The reasons include: price alone, they do not plan to keep the vehicle long, one tire was damaged and the other three still have a fair amount of useful life, etc. If the least expensive new tire becomes more expensive, there is a bigger opportunity for alternatives to new tires (used tires and re-treaded tires) to make further inroads into the market. It is difficult to judge how substantial these impacts would be. At this time there are very few re-treaded tires sold for passenger cars and light trucks.


    Total Annual Costs

    It is assumed that if the cost of the lowest price tires increases by $3 per tire, then the lowest price aftermarket tire will also increase by $3 per tire. The agency estimates that 32.8 percent of the combined sales of P-metric brands LT tires would not pass the proposed requirements. There are approximately 300 million light vehicle tires sold per year. Approximately 13 million of those are temporary spare tires that are not included in this proposal (assuming 15.5 million light vehicle sales per year * 0.85 with temporary spare tires). Thus, there are an estimated 287 million light vehicle tires sold of which 32.8 percent might increase in price by $3 per tire. The total annual cost is thus estimated to be $282 million (287 million tires * .328 * $3).

    There are no costs for Alternative 1, since the agency estimates that all tires would pass those testing criteria. The costs for Alternative 3 are much more difficult to estimate. In order to pass Alternative 3, there would be a large upgrade from the B and C-rated tires for temperature to the A-rated tires for temperature. The cost per tire could be in the $10 to $20 range (comments are requested on these estimates).


    Testing Costs

    There are six tests proposed with which every tire would be required to comply. This section compares the time it takes to run these tests to the time required for the current tests.

    Labor costs are estimated to be $75 per hour for a manager, $53 per hour for a test engineer and $31 per hour for technicians. We do not anticipate that the test manager will be required to spend any more time on the proposed set of tests than on the current set of tests, once the tests are set up. It is anticipated that the test engineer and technician will be involved in running the high-speed low-inflation test for 90 minutes and just the technician will be used for the additional last 5 hours of the endurance test. Thus, incremental test costs are estimated to be $281 per tire tested (1.5 hours * [$53 + $31] + 5 hours * $31). For the early warning rulemaking, the Rubber Manufacturers Association provided NHTSA with an estimate of the number of individual tires made in a year based on SKU numbers, which give individual numbers based on the brand names, tread, ply, fabric, speed rating, and tire size. There are 16,924 P-metric tires and 5,235 LT tires. Thus, there are 22,159 individual tires made a year. Some of these tires are the same, but the brand names are changed and most tires would remain the same for 3-4 years before they are changed. Thus, at the most, 25 percent of the tires would be tested on a yearly basis, or 5,540 tires. Thus, the incremental testing cost is $1,556,740 ($281 * 5,540 tires). This cost is less than one cent per tire when divided by the 285 million tires sold per year.


    Lead Time

    Section 10 of the TREAD Act requires the agency to issue a final rule on this tire upgrade proposal by June 1, 2002. Congress did not set a lead time by which all tires would be required to meet the new standard. The agency anticipates that many P-metric tires rated C for temperature will either be taken off the market or redesigned to pass the proposed standard. Similarly, the agency anticipates that a larger percentage of LT tires will need to be redesigned to pass the proposed standard. Thus, the agency is proposing that LT tires have an additional year to comply with the proposed standard.

    The agency is proposing two alternative phase-in implementation schedules:



    1 The agency is not proposing to require temporary spare tires to meet the proposal. The agency has not tested any temporary spare tires, however, the agency suspects that temporary spare tires could not meet the proposed tests. So, the agency will address temporary spare tires in a separate rulemaking.